INSIGHTS

What Is Social Capital?

Social capital is often confused with human capital, but unlike human capital it sits outside an organisation. Like all other forms of capital we identify with, social capital can be used not only to reduce risk but also create value.

To do so each company needs a social licence to operate and without it they cannot generate sustained financial returns let alone grow.

Companies need to nurture and grow their social capital through external facing acts which generally don’t get internally assimilated into their business models. We believe that companies that do successfully deploy, protect and grow their social capital will deliver sustained financial returns for shareholders.

Against this background, as businesses recognize their responsibility to people and societies (besides profits) and mobilize resources to impact local communities, this brand of social activism also results in a positive knock-on effect on their own employees. Particularly on initiatives and projects where employees engage directly with the local community, it can boost employee morale, productivity and talent retention. The paradigm change from philanthropic social responsibility to proactive engagement and goodwill creation is what Panarchy Partners looks for in companies.

$90m spent on Made to Play

Nike has committed to donating 1.5% of PTI to social causes.

The first case in point is Nike with its Made to Play initiative – the company’s commitment to work with more than 60 global partners to get kids moving and be active. To date, the Made to Play initiative has reached 16 million (and counting) children globally.

Social Issue: Physical activity has been established as an important link between improved physical health and mental wellbeing. However, today’s children (both in the developed and the developing world) are the least active generation in history.

Solution: To tackle this issue head on, Nike’s mission is to help kids get active through a multitude of programs under Made to Play.

Progress on Social Capital: Some notable ways through which Nike is impacting communities around the globe: 1) providing greater support for PE teachers in China – under the China Active Schools Program, over 7,000 teachers are delivering PE lessons. 2) turning employees into coaches – in 2018 alone, 3,800 retail employees in 30 countries spent over 50,000 hours leading sports programs for local youth. 3) through Marathon Kids program which hit a major milestone in 2018 – helping half a million kids experience the fun of recreational running. Lastly 4) using football to fuel relationships – in partnership with the International Rescue Committee, Nike teamed up with five schools in Berlin (home to 15,000 refugees) to bridge the worlds between local and migrant children.

Westpac, Australia’s oldest bank, has amongst many other material issues also identified “help when it matters most” as part of their social capital initiative.

Social Issue: Increasing household debt levels in developed economies are a cause of concern for many governments. Coupled with an ageing population and changing demographics, many social groups are facing difficulty managing finances properly.

Solution: Westpac Group’s Financial Inclusion Action Plan (FIAP) aims to address this issue and provide Australians with the access and services to better manage their finances.

Progress on Social Capital: Leveraging its wide market reach, Westpac Group is providing financial training and literacy to youth and marginalized communities, as well as improving the access to financial services for economically disadvantaged groups. In 2016, Westpac launched the FIAP confirming its commitment to helping Australians better manage their money. The Plan works on three key principles of: providing help in times of need, enabling individual’s financial resilience, and supporting small business and social enterprises. Westpac has provided community contributions of roughly AUD 1.2 billion since 2010, and supported close to 110,000 people in the last 3 years through their financial assistance packages. In addition, the Group has a slew of micro-finance programs to help small and medium businesses (SMEs) with innovation in this digital age.

One may think that multi-billion-dollar organizations like Nike and the Westpac Group have deep pockets to spend millions on social capital. However, there are companies from emerging markets who despite facing financial constraints, aptly use their expertise to tackle local issues. Our last example highlights the South African packaged foods and beverage company Tiger Brands.

Social Issue: Poor food nutrition in children is a major issue in developing countries, which has severe impacts not only on their health and wellbeing, but also on their educational and learning behaviours which eventually have life-long implications.

Solution: Tiger Brands Foundation, the company’s social investment arm launched ‘Beyond the Meal’ Program in 2011 to better manage food nutrition in children in South African schools.

Progress on Social Capital : The Foundation has been leading ‘Beyond the Meal’ program which focuses on nutrition and education for underprivileged children. The program provides an in-school, hot cooked breakfast meal to children in no-fee paying schools every school day. The breakfast program also brings awareness to parents, who receive information on good nutrition habits to make healthier choices for their children. To date, the program has served over 70+ million meals in 92 schools across 9 provinces in South Africa. That works out at 63,000 meals served per day on average. It also supports over 60,000 beneficiaries such as farmers, distributors, cooks, school staff and educators.

When Challenges Appear, They Are Better Prepared

Despite a company’s best intentions, challenges appear which test their social license to operate. Companies are then rightly asked to respond to such challenges so as to prove their resiliency. Companies that have been investing in their social capital weather the storm better, Tiger Brands as an example was praised for its response and action towards the handling of the Listeria disease outbreak of 2017/18 in South Africa. Other than a slew of sweeping structural changes in food handling and storage procedures, the company systematically dealt with the issue at an initial financial cost that others would have avoided as they understood the value of their social license to operate. Due to these corrective actions plus the social goodwill that already existed, Tiger Brands relaunch of the affected product has been better than expected – a commendable effort.

The Nike and Westpac case studies of building social capital through impacting local communities are also praiseworthy, but it barely scratches the surface between company and community interaction. These best practices have significant potential to galvanize collective action on the topic of creating, building and developing social capital. In this ever-changing business climate, utilizing organizational resources and influence to impact communities is what needs to become mainstream. This reflects a company’s resilience, and makes them sustainable – the reason why these are exactly the type of companies Panarchy Partners identifies through its proprietary resiliency framework to invest in and attain sustainable return for its partners.

Disclaimer

Panarchy Partners Pte. Ltd. (“Panarchy”) is a Singaporean fund management company registered with the Monetary Authority of Singapore. Panarchy Partners is not registered as an investment adviser in any other jurisdiction. Please do not access this website unless you are an accredited investor, qualified client, institutional investor, or otherwise satisfy applicable legal thresholds in your local jurisdiction, and then only if doing so would not otherwise violate the law in the country in which you reside. Nothing on this website is intended to be, nor should it be construed as, an offer to sell or a solicitation for the purchase or sale of any financial instrument.